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Author: Rickademus Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121146  
Subject: 401K to Roth IRA? Date: 1/2/1999 7:07 PM
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I've got a question I haven't seen answered on this board before, so I'm looking for some help. I've just changed jobs and I'm trying to figure out what to do with the money I accumulated in my previous company's 401K program--about $20,000. My new employer offers a 401K program, but unlike my old company, which matched every dollar I contributed with 25 cents, there is no matching. In addition, my new employer's 401K program is set up so that I'm forced to buy what this particular brokerage firm calls Class B fund shares. These shares are subject to a sales charge of 5% if I redeem the shares within six years of purchase. Actually the sales charge is scaled down each year so that shares redeemed before one year get hit with a 5% charge, before two years 4%, and so on. In short, my new employer's 401K program doesn't seem that attractive to me. Plus, it's important for me to point out that I'm not planning on staying with this new employer for more than two years. In light of all this, my question is, would I be better off taking the $20,000 I have in my old 401K and rolling it into a Roth IRA, which means I'd have to ante up $4,000 in taxes next year. Or, should I go ahead and roll this 20 grand into my new employer's 401K and get hit for hefty sales charges when I move my money again? I'd really appreciate some guidance on this matter. Thanks.
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Author: bliles One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7879 of 121146
Subject: Re: 401K to Roth IRA? Date: 1/2/1999 7:14 PM
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Rickademus said:

In light of all this, my question is, would I be better off taking the $20,000 I
have in my old 401K and rolling it into a Roth IRA, which means I'd have to ante up $4,000 in
taxes next year. Or, should I go ahead and roll this 20 grand into my new employer's 401K and
get hit for hefty sales charges when I move my money again? I'd really appreciate some guidance
on this matter. Thanks.


How about option 3? Roll it into a traditional IRA so no taxes are due till withdrawal. If it is not co-mingled with other funds, it can still be rolled into a (future) employer's 401k, or it can be converted to a ROTH in the future if you decide to do that. All of your options remain intact, and it is more under your control as far as investments. Good luck.

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Author: JABoa Big gold star, 5000 posts Feste Award Nominee! Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7880 of 121146
Subject: Re: 401K to Roth IRA? Date: 1/2/1999 9:01 PM
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I agree with bliles. Option 3c is just to leave the money in the rollover IRA, by the way. Regarding contributions you might have made to the 401(k), perhaps you might think of that money as pension contributions you could make, and put $2000 into a self-directed Roth (or whatever amount you are eligible for) and the rest into some fund that you regard in your own mind as segregated for pension.

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7920 of 121146
Subject: Re: 401K to Roth IRA? Date: 1/3/1999 8:58 PM
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[[In light of all this, my
question is, would I be better off taking the $20,000 I have in my old 401K and
rolling it into a Roth IRA, which means I'd have to ante up $4,000 in taxes next
year. Or, should I go ahead and roll this 20 grand into my new employer's 401K
and get hit for hefty sales charges when I move my money again? I'd really
appreciate some guidance on this matter. ]]

The words "good", "better" and "best" are very subjective. Without know much more about you and your personal tax and estate situation, I can't really say what would be better for you.

But as bliles and JAB point out, you can have the best of both worlds. You can take your 401k funds and roll them over to a regular IRA account. There would be no taxes associated with that rollover, and you could then invest in any vehicle that you see fit.

To take the regular IRA into a Roth IRA would require an additional decision, since there would be tax issues to deal with. Would it be a good idea? It certainly could be for you. But I don't know that.

You might want to read more about the Roth IRA issues and the thought process that goes into making a determiniation in converting your regular IRA to a Roth IRA in my series of posts on the Roth IRA in the Taxes FAQ area. Check it out.

TMF Taxes
Roy

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